Hospital System Real Estate Strategies for Primary Care – Part One

The Challenges of Population Health Management, Healthcare Real Estate and Physician Recruiting

Population Health Management and the transition of healthcare delivery is driving new corporate real estate strategies as Health Systems are increasingly building or leasing new outpatient facilities for treating patients outside the hospital campus setting, often in suburban markets away from the main hospital campus.

Many Health Systems are expanding their services as well as evaluating mergers and acquisitions in an effort to increase or protect market share and are increasingly transitioning into the employed physician model, resulting in larger medical staffs for both primary care and specialists. This trend is creating significant competition for the recruitment of physicians and real estate (i.e.,where the doctor will practice) is playing a significant role in both the recruitment of medical staff but also the future viability and profit margin of the clinic.

Competition, Cost and Available Property Inventory

Competition, cost and the limited availability of quality locations and space are creating real estate challenges for the hospital system which impacts the ongoing recruitment of physicians in a competitive labor environment.

In may cases, expanding hospital systems are seeking highly desirable locations where competition for these spaces and sites is significant from other healthcare competitors and non-related users outside of healthcare. Seeking the most desirable patient demographics in the best suburban markets equates to upper-tier rental and real estate values for all types of product, whether it is M.O.B., traditional office, retail or land.

Many times hospital systems are evaluating highly desirable suburban submarkets with attractive demographics and rapidly growing residential roof-top density but limited commercial property inventory. Adding to the challenge are tight capital budgets and the significant cost nature of clinical build-outs at a time when construction costs are rising.

Stakeholder Real Estate Desires:

Physicians want a quality real estate environment as well as a location that minimizes travel time between their offices, hospital and residences, and they want well-planned clinical space.

The hospital systems wants a facility that supports providing quality healthcare treatment. They want patient convenience, highly visible locations and tenant improvements that enhance the brand, without the impression of excess on unnecessary design and interior finishes, particularly in this uncertain economic environment.

The Timing Issue

In many cases the identification of property alternatives coincides with the recruitment of physicians. For the prospective physician, there are certainly many issues in play of whether to accept hospital employment or move from one provider to another but the physical location of where he or she might practice also plays a role. Quality of life is a factor.

In contrast, hospital systems are reluctant to make lease commitments or commit capital to new construction without the confidence of critical physician staff in tow. This creates significant timing challenges for the Hospital system and the real estate provider in a healthy real estate market such as Houston and competitive arena for highly sought physician candidates.

What’s to Come?

In Part Two of this series we will look at some specific real estate strategies Hospital Systems and their Real Estate Providers are employing to address these challenges.

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